Do You Pay Capital Gains Tax Selling a House in Washington?
The answer depends on three different tax rules. Here is how the federal home-sale exclusion, Washington capital gains tax, and real estate excise tax work together.
Many people who sell a qualifying primary home in Washington owe no federal capital gains tax on the sale. A single seller may be able to exclude up to $250,000 of gain, and qualifying married couples filing jointly may exclude up to $500,000. Washington’s separate capital gains excise tax does not apply to real estate. Sellers can still owe federal tax on gain above the exclusion, and Washington’s real estate excise tax, or REET, is a separate tax that generally applies to the sale price.
Washington does not currently have an individual income tax, so a lot of sellers assume that means there is no tax when they sell a house. Then they hear the phrase “capital gains” and start to worry.
The reality is more straightforward once you separate the different taxes. Three different tax rules can affect what you keep from a home sale in Greater Seattle. One is federal. One is a Washington capital gains tax that specifically exempts real estate. And one is Washington’s real estate excise tax, which commonly appears at closing.
Understand those three pieces and you will have a much clearer idea of what you may owe, what you probably will not owe, and what should be included when you estimate your net proceeds before listing.
Washington still does not currently have an individual income tax. A new state income tax enacted in 2026 is scheduled to begin January 1, 2028, so it does not change the tax treatment of a home sold in 2026. See the Washington Department of Revenue for current guidance.
Let’s break down the three taxes one at a time, with examples that make the numbers easier to understand.
The Three Taxes That Actually Decide What You Keep
When you sell a house in Washington, three different tax rules may come into play. Knowing which one applies to you is most of the battle.
This is based on your gain, but the federal home-sale exclusion can eliminate up to $250,000 or $500,000 of qualifying gain.
Washington has a separate capital gains excise tax, but the sale or exchange of real estate is specifically exempt.
Real estate excise tax is generally paid by the seller at closing and is based on the sale price, not your profit.
1. Federal Capital Gains Tax and the Home-Sale Exclusion
This is the big one, and it is also the rule that saves many primary-home sellers from paying federal tax on all or part of their gain.
The IRS treats profit from the sale of your home as a capital gain. But there is an important exception for your main home called the Section 121 exclusion. If you qualify, you may be able to exclude a substantial amount of gain before federal capital gains tax applies.
Here is the maximum exclusion:
| Filing Status | Maximum Gain That May Be Excluded |
|---|---|
| Single | Up to $250,000 |
| Married Filing Jointly | Up to $500,000 if the joint-return requirements are met |
For a single seller to claim the full exclusion, you generally need to meet the ownership and use tests described in IRS Publication 523 .
- Ownership test: You owned the home for at least 24 months during the five years before the sale.
- Use test: You lived in the property as your main home for at least 24 months during that same five-year period.
- Prior-sale test: You generally cannot have excluded gain from another main-home sale during the two years before this sale.
Married couples have an extra wrinkle: To qualify for the full $500,000 exclusion on a joint return, generally at least one spouse must meet the ownership test, both spouses must meet the use test, and neither spouse can have used the exclusion on another home during the prior two-year period.
There are also situations where a seller who does not meet all of these requirements may qualify for a reduced exclusion, such as certain moves related to employment, health, or unforeseen circumstances. That is one reason it is worth checking the details rather than assuming you either qualify for the full exclusion or get nothing.
Now, the word gain matters. Your taxable gain is not simply your sale price minus what you originally paid for the house.
Your adjusted basis usually starts with what you paid for the property and then changes over time. Qualifying capital improvements can increase your basis. A new roof, a major kitchen remodel, an added bathroom, or other substantial improvements may count. Routine repairs and maintenance generally do not.
Selling expenses are handled separately. Certain expenses associated with selling the property, such as real estate commissions and some transfer-related costs, can reduce the amount realized from the sale.
This is why keeping records for major improvements can matter years later. The higher your legitimate adjusted basis, the lower your gain may be.
Say a married couple bought a Shoreline home years ago and, after accounting for their adjusted basis and selling expenses, their gain is $400,000.
If they qualify for the full $500,000 Section 121 exclusion, the entire $400,000 gain can be excluded from federal income tax.
Was the home ever a rental? Rental or business use can make the calculation more complicated. Depreciation deductions and certain periods of nonqualified use may cause some gain to remain taxable even if you otherwise qualify for the home-sale exclusion. This is a good situation to review with a CPA before you sell.
2. Washington’s Capital Gains Excise Tax: The One That Skips Real Estate
This is where a lot of the confusion starts.
Washington does have a capital gains excise tax on certain long-term capital gains. That sounds alarming if you are about to sell a home that has gone up substantially in value, but the most important part for homeowners is simple:
Beginning with tax year 2025, Washington uses two rates for taxable Washington capital gains.
The first $1 million of taxable Washington capital gains is subject to the 7% rate.
Taxable Washington capital gains above $1 million are subject to the higher 9.9% rate.
Washington also provides an annually adjusted standard deduction. These rules can matter when someone has significant gains from investments such as stocks or certain business interests.
But a real estate sale is treated differently.
According to the Washington Department of Revenue capital gains FAQ , the tax does not apply to the sale or exchange of real estate.
- Your primary residence
- A rental house
- Vacant land
- Commercial real estate
- A second home or vacation property
The exemption does not depend on how long you owned the property or whether you lived there. It also is not limited to residential property.
That means someone selling a Seattle home for a large profit may still have a federal capital gains issue, but Washington’s separate capital gains excise tax does not apply simply because the property appreciated.
If someone tells you Washington will automatically charge you 7% or 9.9% on the profit from selling your house, they are mixing up Washington’s capital gains excise tax with other taxes. The state’s capital gains tax specifically excludes real estate.
3. Washington Real Estate Excise Tax: The Tax Sellers Actually See at Closing
This is the Washington tax sellers are much more likely to encounter.
Washington’s real estate excise tax, usually called REET, applies to most sales of real property. Unlike capital gains tax, REET is not based on how much profit you made.
Looks at your gain after considering items such as adjusted basis, selling expenses, and any available exclusion.
Looks primarily at the taxable selling price of the property, regardless of how much profit you made.
For most residential sales, Washington uses graduated state REET rates. That means different portions of the selling price are taxed at different rates, similar to tax brackets.
| Portion of Taxable Selling Price | State REET Rate |
|---|---|
| $525,000 or less | 1.10% |
| $525,000.01 to $1,525,000 | 1.28% |
| $1,525,000.01 to $3,025,000 | 2.75% |
| $3,025,000.01 and above | 3.00% |
These are the current state graduated REET rates published by the Washington Department of Revenue .
There is also a local component. Cities and counties may impose local REET in addition to the state tax, so the total amount shown on your closing statement can be higher than the state rates in the table above.
In a typical Washington residential sale, the seller pays REET as part of the closing process. The tax usually comes directly out of the seller’s proceeds rather than being paid later with an annual income tax return.
That is one reason REET can surprise homeowners. A seller may correctly determine that they owe no federal capital gains tax and still see thousands of dollars in excise tax deducted on the closing statement.
There are exemptions and special rules for certain transfers, so REET does not apply in exactly the same way to every change in property ownership. But for a normal arms-length home sale, it is an expense sellers should expect and plan for.
When I prepare an estimated seller net, REET is one of the costs I want included from the beginning so you are looking at a realistic estimate of what you may actually walk away with.
If you want a deeper explanation, see my guide to Washington Real Estate Excise Tax for Sellers .
So now we have the full picture: federal capital gains tax may apply to your gain, Washington’s capital gains excise tax does not apply to real estate, and REET is the Washington tax most sellers actually see on the closing statement.
Worked Examples: What Could This Look Like in Real Life?
Tax rules are easier to understand when you put actual numbers around them. Here are three simplified examples that show how very different home sales can produce very different tax results.
A Long-Time Couple Selling Their Home
Imagine a married couple who bought a house in Renton years ago for $350,000. Over time, they invested about $75,000 in substantial kitchen and bathroom improvements.
They sell the home for $850,000 and have approximately $60,000 in selling expenses.
Potential result: If they qualify for the full $500,000 Section 121 exclusion, their $365,000 gain is fully excluded from federal income tax.
Washington’s capital gains excise tax does not apply to the real estate sale, although REET would generally still be due at closing.
A Seattle Seller With Gain Above the Exclusion
Now imagine a single seller who bought a Seattle home decades ago for $180,000.
Over the years, the seller made about $50,000 in qualifying capital improvements. The property eventually sells for $1,050,000, with approximately $40,000 in selling expenses.
Potential result: If the seller qualifies for the full $250,000 exclusion, approximately $530,000 of gain remains potentially subject to federal tax.
That does not mean the seller simply multiplies $530,000 by one tax rate. The actual federal tax depends on the seller’s overall tax situation, which is where a CPA should step in.
Washington’s capital gains excise tax still does not apply because this is a sale of real estate. REET, however, would generally still apply to the transaction.
An Inherited Home and the Stepped-Up Basis
This scenario often surprises families handling a parent’s home.
Say your mother purchased her Kent home in 1985 for $95,000. By the date she passes away, the property is worth approximately $600,000.
In a typical inherited-property situation, the basis is generally tied to the property’s fair market value at the date of death, or another permitted estate-tax valuation amount when applicable.
Now assume you inherit the house and sell it several months later for $610,000.
Potential result: Instead of calculating hundreds of thousands of dollars of gain from the original $95,000 purchase price, the simplified example produces only about $10,000 of gain before selling expenses and other adjustments.
That is why a home inherited and then sold relatively soon after the owner’s death may produce little or no taxable gain.
The exact calculation can depend on valuation, ownership, estate filings, community property rules, and other circumstances. A good date-of-death valuation can be extremely important.
If you are dealing with a parent’s property, I go into the real estate side of this process in my guide to Selling a Parent’s Home After Death in Washington .
Put the Three Examples Side by Side
The same home-sale tax rules can lead to very different results depending on how you owned the property, how much it appreciated, and whether it was inherited.
Married Couple Selling Their Primary Home
Single Seller With Large Appreciation
Inherited Home Sold Near Its Inherited Basis
The Bottom Line
Washington’s capital gains excise tax stays out of all three real estate examples. Federal tax depends heavily on your gain, your available exclusion, and your basis. REET is the tax that generally appears in all three transactions.
Gather the Numbers Your CPA Will Actually Need
You do not need to become a tax expert before selling your house. But having the right records makes it much easier to estimate your gain and ask your CPA the right questions.
Want my seller tax-prep checklist? I can send you a simple list of the records to gather and the questions you may want to bring to your CPA before you sell.
Frequently Asked Questions
These are some of the questions I hear most often from Washington homeowners trying to figure out what taxes may come with a sale.
Do I pay Washington state capital gains tax when I sell my house?
No. Washington’s capital gains excise tax does not apply to the sale or exchange of real estate.
That exemption is not limited to your primary residence. It can also apply to other real estate, including rental property, land, second homes, and commercial real estate.
You could still owe federal capital gains tax depending on your gain and whether you qualify for an exclusion. Washington’s separate real estate excise tax, or REET, may also apply to the sale.
Washington Department of Revenue: Capital Gains FAQHow much gain can I make on my home before I owe federal capital gains tax?
A qualifying single seller may be able to exclude up to $250,000 of gain.
A qualifying married couple filing jointly may be able to exclude up to $500,000 of gain.
Remember that this applies to your gain, not the selling price of the house. Your adjusted basis, qualifying improvements, and selling expenses can all affect the calculation.
You also have to meet the applicable ownership, use, and prior-sale requirements.
IRS Publication 523: Selling Your HomeDo I owe capital gains tax on a house I inherited in Washington?
Possibly, but inherited property is generally treated very differently from a home you purchased yourself.
The property’s basis is generally tied to its fair market value at the previous owner’s death, or another permitted estate-tax valuation amount when applicable.
If you inherit a home and sell it relatively close to that value, there may be very little taxable gain.
This is why obtaining a defensible date-of-death valuation can be important when a family is settling an estate.
For the real estate side of the process, see my guide to Selling a Parent’s Home After Death in Washington .
What is the difference between REET and capital gains tax?
They are two completely different taxes.
Capital gains tax looks at your gain. That calculation can involve your adjusted basis, improvements, selling expenses, and any exclusion you qualify for.
REET is generally based on the taxable selling price. It can be due even if your federal taxable gain is zero.
For more detail, see my guide to Washington Real Estate Excise Tax for Sellers .
Do I have to report my home sale if I owe no capital gains tax?
Sometimes.
If you receive a Form 1099-S for the sale, the transaction generally needs to be reported on your federal tax return even when your gain is fully excluded.
If your entire gain qualifies for the exclusion and no Form 1099-S is issued, you may not have to report the sale.
Your tax preparer can confirm whether your particular transaction needs to appear on your return.
What if my house used to be a rental?
This is one of the situations where I would be especially careful about relying on a simple online capital gains calculator.
Previous rental or business use can affect the calculation. Depreciation deductions and certain periods of nonqualified use may cause some gain to remain taxable even if you otherwise qualify for the primary-residence exclusion.
If the property has moved back and forth between being your home and being a rental, give your CPA the full ownership and occupancy timeline before estimating your tax.
Get Your Numbers Right Before You List
For many Greater Seattle homeowners, the fear of capital gains tax turns out to be bigger than the actual federal tax bill.
The important thing is not to rely on a shortcut like “Washington has no state income tax” or assume that because Washington has a capital gains tax, it must apply to your home.
The sellers who get surprised are usually the ones who guess. Your purchase price, improvements, selling expenses, how long you lived in the home, whether it was ever rented, and whether it was inherited can all change the calculation.
You do not need to figure every tax detail out by yourself before listing. What you do want is a realistic estimate of your proceeds and a clear idea of which questions need to go to your CPA.
About Emily Cressey
Emily Cressey is a real estate broker with HomePro Associates at Keller Williams Greater Seattle and a real estate investor with experience dating back to 2002. She helps buyers, sellers, investors, and families handling inherited and estate properties throughout the Greater Seattle area. Her approach is focused on helping clients understand the numbers, evaluate their options, and make confident real estate decisions.